What is Title Insurance? Help with Title Insurance

What Can a Title Company do for you?
Have you purchased, or thought about purchasing, property in the United States? If so, you have probably heard the term “title” and likely the phrase “title insurance” and “title insurance company”. What exactly is title insurance? What does a title company do, and who are the main ones in the United States? What does title insurance do for you as a homeowner? How much will title insurance cost you? You could buy yourself a huge book detailing all the intricacies of title insurance (like "Title Insurance Tips and Secrets", "Title Insurance, Third Edition: A Comprehensive Overview", or "Title Insurance 101") , but unless you want to start up a career in real estate that might be overkill. Instead, here's a bit of primer on title insurance and a look at a few different title companies.

title insurance

The Origin of Title Insurance for Real Estate

Title insurance is a creation of the United State, designed to protect real estate owners and lenders in the event of a contested land claim. Basically, when you buy a house or buy property, you want to know if someone else besides the seller has a legal claim on the property - you don't want to take title of a house, only to find out that the guy who built it is still owed $200,000, and now you owe him that money or he lays claim to your house. Now in theory, the local city or state government would monitor this and track this (where do all those tax dollars go??), knowing at any given time exactly who owned each piece of property located in their jurisdiction, and what claims were against it. But guess what, surprise! They can't do this. So title insurance developed as a private enterprise to protect people when making real estate transactions. As long as you purchase title insurance, you are guaranteed clean ownership over the property that you purchase.

The concept is over a hundred years old. The first title company was started in Philadelphia after a benchmark case in which a seller of property had been misinformed of a lien on the property and assured the buyer title was clear. The buyer ended up losing the property and investment when the lien claim was proven valid and the court found the seller not responsible for the property costs. Real Estate Title Insurance Company of Philadelphia was born out of this event and was the first title company in the world. Today, the company is still around although it has merged with others twice in that time and today is a part of the Transnation Title Company. While title insurance may seem like an extra expense to many Americans, a system of title insurance is less expensive than the land registration used in much of the rest of the industrialized world for legalities involving title. Land registration requires government regulation and inspections, and thus more expense. The title insurance system puts the registration in private hands at much lower costs. Also, keep in mind there are 2 types of title insurance - owner's policies and lender's policies. The lender policy ONLY covers the bank lending you the money, you will need a separate owner's policy to protect yourself.

How much does title insurance cost?

How much does title insurance cost? It depends, but as a general rule it should be no more than ½ of a percent (.005) of the price of the property, and sometimes it will be as low as .0035. We're talking about $700-$1000 on a $200,000 home. And it's a one-time fee paid at closing, not an annual policy like homeowners insurance. Unlike many forms of insurance, title insurance is mandatory in the United States, and property owners must use a title company in order to get it. However, there is a law which states that all homeowners be given the right to choose the title company from whom they buy their title insurance. Many homeowners rely on the advice of their bank or real estate attorney when it comes to selecting a title company, but nobody can require a purchaser of property to use any one title insurance company. Basically, there are two parts to title costs. The first is the premium, the upfront fee charged each time a title is filed. Some states such as Georgia and Illinois do not regulate the premiums, so title companies can change them whenever and charge whatever they wish. Most states to have regulated title insurance systems, however. In many, including the aforementioned Philadelphia where title insurance is governed by the Pennsylvania Insurance Commission, there are two premium rates allowed. The first is the basic, which applies to titles which have not been issued in over ten years. The second is reissue, which offers a large discount for homeowners who have registered a title policy within the last ten year; taking advantage of reissue title policies can save a real estate owner a lot of money. The second part of the cost of title are service charges. These fees are really anything not directly related to the title itself. They cover attorney fees, underwriting, examination fees, and records search fees. Most service charges are not regulated. Therefore, they are a key component when you are deciding what title company would work best for you (they can be negotiated, and some title companies will extra service fees for strange services such as paperwork and so on). Fun fact - the closing attorney usually gets more than half of the title insurance commission, you know they work so hard!

Finding the Title Company that works Best for You

Remember, it is your right to choose the title company you think best. Your bank may work closely with a specific title company and recommend you use them (or just assume you will) but by no means do you have to. A little bit of research can really help you save some big money here. First, look for a title company which uses ALTA forms. The ALTA organization is a trade association of title insurers, and top title companies such as LandAmerica subscribe to the streamlined process the association has put together. Regulation and standardization is the key to clearer understanding in any industry, and title insurance is no exception. Next, remember that national companies are preferable to regional ones most of the time. They have greater assets, therefore the methods of search (and compensation if needed) are broader. The biggest title companies in America are the aforementioned LandAmerica, First American Corporation, Fidelity National Financial, Stewart, and Old Republic International. The advantage to larger corporations is that they do have some stability; title companies have been known to fold overnight (and very recently too). You should also look at response times of the title company you are thinking about using; if they aren't calling you back promptly now, can they be relied upon to return your calls when it counts? A realtor writing for ezinearticles.com says probably not; it's best to go with a title company who provides fast and efficient service. And always remember to comparison shop on premiums and on service fees before selecting a title company, it could end up saving you hundreds of dollars!

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